Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

Risk Management Critical to Corporate Strategy

09.01.2009
With the consequences of the current financial crisis spreading to the real economy, lawmakers are exploring new regulations to govern the financial markets. The concern among market participants is that policy-makers do not fully understand how risk management does and should work, and how derivatives can be beneficial.

In the “MIT Roundtable on Corporate Risk Management” that appears in the Fall 2008 issue of Morgan Stanley’s Journal of Applied Corporate Finance, a distinguished group of academics and practitioners assess how risk management affects corporate growth and value.

For many companies, effective corporate risk management begins with an equity cushion in the capital structure. This helps to avoid raising prohibitively expensive capital following an adverse event. Excessive leverage contributed to the problems of many banks, leading to the current industry-wide de-leveraging.

Andrew Lo, Professor of Finance at the MIT Sloan School of Management and director of MIT’s Laboratory for Financial Engineering, contends that too often what passes for risk management at many financial companies is really risk measurement. This offers little prescriptive advice on how to actually manage the risks, as opposed to corporate governance structures for actively and effectively managing risks. In addition, some of the current problems can be attributed to the failure of risk managers and their models to account for highly improbable events.

A paradox of risk-reducing financial innovation is that it tends to encourage market participants to increase risk-taking in other ways. Robert Merton of Harvard Business School and Nobel laureate in economics points out that the challenge from a regulatory standpoint is to find the right balance between these two offsetting forces.

“Moving forward, we need more financial engineers, not fewer – risk and innovation, including derivatives, are not going away, and we need senior managements, boards, and regulators of financial institutions who understand them,” Merton notes.

This study is published in the Journal of Applied Corporate Finance. Media wishing to receive a PDF of this article may contact journalnews@bos.blackwellpublishing.net.

Don Chew, Editor of the Journal of Applied Corporate Finance, can be reached for questions at don.chew@morganstanley.com.

Published since 1988 and reaching a broad audience of senior corporate policy makers, this highly regarded quarterly brings together academic thinkers and financial practitioners to address topics driving corporate value. The Journal covers a range of topics, including risk management, corporate strategy, corporate governance and capital structure. The Journal also features its popular roundtable discussions among corporate executives and academics, on topics such as integrity in financial reporting.

Amy Molnar | EurekAlert!
Further information:
http://www.wiley.com
http://www.wiley.com/bw/press/pressitem.asp?ref=2019

More articles from Business and Finance:

nachricht Frugal Innovations: when less is more
19.04.2017 | Fraunhofer-Institut für Arbeitswirtschaft und Organisation IAO

nachricht Europe's microtechnology industry is attuned to growth
10.03.2017 | IVAM Fachverband für Mikrotechnik

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: A quantum walk of photons

Physicists from the University of Würzburg are capable of generating identical looking single light particles at the push of a button. Two new studies now demonstrate the potential this method holds.

The quantum computer has fuelled the imagination of scientists for decades: It is based on fundamentally different phenomena than a conventional computer....

Im Focus: Turmoil in sluggish electrons’ existence

An international team of physicists has monitored the scattering behaviour of electrons in a non-conducting material in real-time. Their insights could be beneficial for radiotherapy.

We can refer to electrons in non-conducting materials as ‘sluggish’. Typically, they remain fixed in a location, deep inside an atomic composite. It is hence...

Im Focus: Wafer-thin Magnetic Materials Developed for Future Quantum Technologies

Two-dimensional magnetic structures are regarded as a promising material for new types of data storage, since the magnetic properties of individual molecular building blocks can be investigated and modified. For the first time, researchers have now produced a wafer-thin ferrimagnet, in which molecules with different magnetic centers arrange themselves on a gold surface to form a checkerboard pattern. Scientists at the Swiss Nanoscience Institute at the University of Basel and the Paul Scherrer Institute published their findings in the journal Nature Communications.

Ferrimagnets are composed of two centers which are magnetized at different strengths and point in opposing directions. Two-dimensional, quasi-flat ferrimagnets...

Im Focus: World's thinnest hologram paves path to new 3-D world

Nano-hologram paves way for integration of 3-D holography into everyday electronics

An Australian-Chinese research team has created the world's thinnest hologram, paving the way towards the integration of 3D holography into everyday...

Im Focus: Using graphene to create quantum bits

In the race to produce a quantum computer, a number of projects are seeking a way to create quantum bits -- or qubits -- that are stable, meaning they are not much affected by changes in their environment. This normally needs highly nonlinear non-dissipative elements capable of functioning at very low temperatures.

In pursuit of this goal, researchers at EPFL's Laboratory of Photonics and Quantum Measurements LPQM (STI/SB), have investigated a nonlinear graphene-based...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

Marine Conservation: IASS Contributes to UN Ocean Conference in New York on 5-9 June

24.05.2017 | Event News

AWK Aachen Machine Tool Colloquium 2017: Internet of Production for Agile Enterprises

23.05.2017 | Event News

Dortmund MST Conference presents Individualized Healthcare Solutions with micro and nanotechnology

22.05.2017 | Event News

 
Latest News

Physicists discover mechanism behind granular capillary effect

24.05.2017 | Physics and Astronomy

Measured for the first time: Direction of light waves changed by quantum effect

24.05.2017 | Physics and Astronomy

Marine Conservation: IASS Contributes to UN Ocean Conference in New York on 5-9 June

24.05.2017 | Event News

VideoLinks
B2B-VideoLinks
More VideoLinks >>>